Macroeconomy, economics, Microeconomics

Adding the economic activities of government to the circular flow model shows that: 1. Government spending creates inflation 2. Government purchases of goods and services, taxes, and transfer payments affect how resources are allocated 3. The Federal government has to borrow funds from households in order to pay salaries to public officials and members of the armed forces 4. The economic functions of government are shared equally among Federal, state, and local governments